A Sea Change in Flood Insurance: FEMA’s Implementation of Risk Rating 2.0

Since 2017, costs associated with losses due to flooding and tropical cyclones totaled approximately $406.5 billion in the United States.¹ Since 1954, three of the top five costliest hurricanes occurred during this same period, all in 2017: Hurricane Harvey ($133.8 billion); Hurricane Maria ($96.3 billion); and Hurricane Irma ($53.5 billion).² The National Flood Insurance Program (“NFIP”), which provides over 5 million flood insurance policies across the United States,³ and by extension the U.S. Treasury,⁴ has been extraordinarily burdened by the multitude of flood loss claims in recent history. To address the overwhelming costs associated with flood losses, the Federal Emergency Management Agency (“FEMA”) is rolling out a new system of ratings that will impact nearly every policyholder in the country: Risk Rating 2.0. 

As a brief background, the NFIP has been referred to as a “child of Congress,”⁵ enacted at the discretion of Congress pursuant to the National Flood Insurance Act of 1968.⁶ The purpose of creating the NFIP, succinctly, was because “[i]t [was] uneconomical for private insurance companies to provide flood insurance with reasonable terms and conditions to those in flood prone areas. Therefore, in 1968 Congress established the National Flood Insurance Program to provide insurance coverage at or below actuarial rates.”⁷ FEMA, through its Director, is charged with implementing and overseeing the NFIP. The Director is authorized to promulgate regulations “for the general terms and conditions of insurability which shall be applicable to properties eligible for flood insurance coverage,”⁸ as well as regulating the methods by which losses are adjusted and paid.⁹